Lenders reduce required credit scores for FHA loans

BY E. SCOTT RECKARD

February 27, 2014, 9:00 a.m.

Here’s some welcome news for first-time and lower-income mortgage borrowers: Home loans insured by the Federal Housing Administration are getting easier to come by.

The average credit score on FHA-backed loans declined steadily in 2013, Inside Mortgage Finance reported Wednesday.

The trade publication said FHA borrowers’ average debt-to-income ratio – a measure of how much of their earnings are needed to keep up with housing and other debt payments – rose noticeably as well. That's another sign that banks have eased up a bit.

The trend appears to be continuing, as actions by No. 1 home lender Wells Fargo & Co. illustrate. Since January, Wells employees have been allowed in some cases to qualify FHA borrowers for home-purchase loans with credit scores as low as 600. That’s considered subprime territory and down from a previous threshold of 640.

The FHA theoretically allows credit scores as low as 580. But lenders, buffeted by defaulted loans and demands that they buy back troubled mortgages that they sold, generally have set standards higher since the mortgage meltdown.

A Wells official said the bank consulted with the FHA’s parent, the federal Department of Housing and Urban Development, and with advocacy groups before making its decision.

“All loan applications are fully underwritten and documented, and borrowers must demonstrate ability to repay,” Wells spokesman Tom Goyda said.

Inside Mortgage Finance said Ginnie Mae, the government agency that issues bonds backed by FHA loans, had reported that as of January 2013 the average credit score on an FHA loan was 701, and the debt-to-income ratio was 38%.

Last month, the average credit score was down to 680, while the average debt ratio had risen to 40.3%.

The average credit score in securities backed by Fannie Mae and Freddie Mac fell last year as well and the debt-to-income ratio rose.

Low interest mortgages with Charter One

Charter One, with locations in southeast Oakland County, including Berkley and the other Woodward 5 communities, is offering a mortgage with an interest rate as low as 3%. If you currently lease or are looking to buy another home, this could be right for you.

That’s right, 3% interest rate on a mortgage.

Here is a statement from Charter One,

“Saving enough for a down payment and closing costs to buy a home can sometimes be challenging. To help our customers get a little further down the road to owning their own home, we offer the Destination Home Mortgage. It’s an affordable program that lets you put just 3% down on the purchase price, and best of all, there’s no monthly mortgage insurance requirement. Our program also features:

• Competitive rates

• Low cash reserve requirements

• Stable, fixed monthly mortgage payment

• Closing cost assistance/grant eligibility”

If you are interested in this low interest rate, please let me know and I will direct you to the area manager for the Charter One mortgage department.

*** 

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley Area Chamber of Commerce through Real Estate One.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.  

Leasing a home can be easy and there are no fees or commssions

Finding a home to rent can be a struggle.  Especially if out there all alone looking for someplace that is livable.  

But, it doesn’t have to be.  A real estate agent can also help find a home to rent just like the search for a home to purchase.  The nice thing is that there are no fees or commissions for the renter to pay.  All of those fees are paid by the landlord.

The real estate agent can provide a list of houses, flats, apartments or lofts that are currently on the market in the geographic area that the renter requests.  It can be narrowed by the price range and numerous amenities that are needed.

After examining the details of the properties on the list, and perhaps with a drive by, the renter can then determine what properties to walk through.  The agent can then set up the showings.

Making an offer on a home to lease is a little simpler than on a purchase.  But, there is still some of the same paper work.

• Agency disclosure form - This document fully informs the renter that the real estate agent is an agent.
• Designated Tenant Agency Agreement - This document allows the agent to work for the benefit of the renter.
• Offer to lease - This document details the terms that the renter is willing to accept and the amount of the rent being offered.
• Property disclosures such as lead based paint and other building materials used in the construction of the property that may cause health issues.

The offer to lease will set the terms for the lease.  The financial details are the monthly rent, the security deposit, a pet security deposit, a cleaning fee if there is one.  It will also state who is to pay the utilities (usually the renter), the taxes (usually the landlord), waste removal and water bill.  If applicable, it will state who will cut the grass and perform the general maintenance of the property.

Along with the documents mentioned above the following is often required. These documents are very important because landlords will require them before you are even considered, often before you can even see the house.

• Proof of employment - a letter from your employer
• Two month's pay stubs
• Two years of W-2
• Credit score - available for free from Credit Karma and others online
• Two month's of bank statements
• Previous landlord or mortgage company and contact information
• Social security number
• Proof of ID, such as Michigan license, Michigan ID card or passport
• Most likely for many, there is a criminal background check

These documents are then submitted to the landlord or the landlord’s real estate agent for acceptance.

If the application is accepted, a closing is set up at the property.  At the closing three checks are needed:

• One check or money order for half of the first month’s rent made out to the landlord’s real estate agent company
• One check or money order for half of the first month’s rent made out to the renter’s agent’s real estate company
• One check or money order in the amount of the security deposit made out to either the landlord, the landlord’s real estate agency or a property management company.

Also at the closing, the renter will be asked to review the property and make note of anything that is wrong or damaged.  It is suggested that besides making a note of the issues, that either a photo or video also be taken.  For things that are essential to the operation of the property, such as a water heater or stove, a request to repair it can be made.  If it is cosmetic, making a note protects the renter from possible action against the security deposit when the lease is completed.  At that time, if satisfied, the renter can sign the lease, present the checks and take over the property.

While most, if not all, properties will follow the above process, there may be a individual property owners that ask that things be done a little different.  Those situations are handled on a case by case basis.

This process may seem complex, but it really isn't.  A good agent will make sure things run as smoothly as possible. But, remember, there are no fees or commissions to pay.

***

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page. 

Using a Realtor to sell your home

It was thought that the internet would help many more people sell their home on their own.  But, just the opposite has happen.  Research conducted by The National Association of Realtor’s found that For Sale By Owners (FSBOs) was 10% in 2011.  That is down from 14% in 2003 and 2004.

Half of all FSBO sales are transfers or other situations where the sellers were familiar with the buyers.  FSBOs were only 6% of all sales in 2011 when the seller and buyer did not know each other.

There are key reasons that sellers turn to a Realtor to help sell their homes.  Here are some:

• Price the home right for the market

Unless you have access to homes that are similar in the area that have sold in the last 3 to 6 months, it will be tough to price your home to the market.  The home may need to sell at a certain price to pay off the mortgage and provide a profit.  But, that isn’t necessarily the way the price is set.  If your home is overpriced, it will set on the market for ever.  If it is under priced, it will sell quickly, but not provide as much profit as could have been earned.

• The decline of print advertising as a major lead generator

In the past, newspaper ads would produce a fair number of calls on FSBOs. Today, a three-line ad in the local newspaper has little chance of competing with the wide array of information online, including video, color photos, 360-degree virtual tours, and a wealth of community and lifestyle data.

• Buyers seek rich content

Individual real estate companies, Realtor.com, and other national on line real estate websites provide the ability to reach all homes that are listed, no matter what agency listed the property.  Buyers find it more efficient to search these sites then to look for single homes for sale.  

• Instant gratification

Buyers will only view a home for 15-30 seconds on line.  If an owner doesn’t have a way of capturing the buyers contact information, they will lose them.  Then, if the buyer does contact the seller, if the seller doesn’t get back with them immediately, the buyer will move one.  Realtors know this well and make themselves available for any contact that comes forward.  Most people selling a home on their own have other things to do, like their job.  

• Buyers want the savings

When buyers do seek out FSBOs, they do it because they are expecting them to sell for less than market value.  Buyers even take 6-10% off the asking price at first approach.  In the end, homes sell for up to 20 percent off market.  

• The needle-in-the-haystack effect

Try searching for FSBOs on line and up will come real estate companies and individual Realtors.  To provide their clients with the best opportunity to sell homes at top dollar, these companies spend millions in designing their websites and managing their online presence.  When buyers search, their sites are on top.

Sellers can also post on the national real estate websites and for sale by owner sites.  But, again, it is the same issue as above.  Unless you are available from 7 in the morning till 8 or 9 at night, you will miss opportunities.  

Then there is Craig’s list.  The ad needs to be posted regularly to stay on top.  Since Craig’s only allows the same ad to be post every three days, for two of the three days the home is not on top.  A Realtor will make sure the posting stays on top.  Additionally, many people are very aware of the scams on Craig’s and have trust issues when contacting a private seller.  

• Potential buyers are reluctant to share information

When a potential buyer approaches a Realtor to get help finding a home, the Realtor needs a lot of information to help them find the home of their dreams.  This includes plenty of financial information to help qualify them for the home the buyer is looking for.  People will be reluctant to share this information with a stranger that is not licensed or insured.  

• Availability for showings

As above, being available 24/7 to meet with buyers is a problem.  Even if a lock box is on the door to let people in, can they be trusted.  Are they really a buyer or someone that just wants in the home?  When an agent lets people in your home, the agent is there with them.

• Understanding the Sales Process

Realtors are familiar with the process of selling a home.  They are accustom to working with purchase agreements, counter offers, negotiations, home inspections, title companies and closings.  Beside all the legal issues, there are agency policies, state and federal laws as well as issues that arise out of individual situations to satisfy.  If you work with a Realtor, you may want to consult a lawyer for many of the issues, but when you don’t have a Realtor, you will absolutely need a lawyer.  It will insure that something isn’t going to come up before the closing, during the closing or in some cases, a year or two later that will wreck havoc on the finances of the seller.

• Inspection

After the home is “sold” there are contingencies.  One is the inspection the buyer may require before providing a final approval.  There isn't a home that is perfect and the inspection will highlight all the imperfections in the home.  The buyer will return with a list of things that need to be fixed or will request money off of the sale price to proceed.  Realtors know about inspections and what may warrant repair or a price reduction.  Also, depending on a number of other factors, it may be best to pass on the sale and keep the house on the market.

• Appraisal

The home may sell for the price asked and be the best price on the market.  But, unless the lender for the buyer thinks that it is worth what it sold for, it will be tough getting an approval on the mortgage.  Realtors will make sure the house is priced right from the beginning, that the buyer is qualified and have the knowledge combined with experience to help, in many cases, get around the approval process.

In the end, a working with a Realtor is well worth the commission.

Morris Hagerman Properties Index

Morris Hagerman Real Estate One Website

An FHA may not be the best mortgage for everyone

Report on thefiscaltimes.com

The most popular type of mortgage for buyers with low down payments keeps getting pricier and less appealing as more buyers question whether it's still worth getting an FHA loan.

The mortgage insurance premium on loans backed by the Federal Housing Administration has nearly tripled since 2008. A few months ago, the FHA changed its rules to require borrowers to pay for mortgage insurance for the life of the loan.

"FHA loans really used to be a first option for homebuyers with a low down payment," says Scott Schang, a branch manager for Broadview Mortgage Katella in Orange, Calif. "Now, I see people doing them because they have to and not because it's their first option."

The FHA allows buyers to get a mortgage with a down payment as low as 3.5 percent. The underwriting requirements to qualify for an FHA loan generally are less stringent than for conventional loans. But after the recent change and the numerous fee increases, FHA loans are generally not a borrower's best mortgage option, Schang says.

Historically, the purpose of FHA loans was to help low-income buyers afford homes. During the subprime boom from 2003 to 2007, less than 10 percent of the purchase loans being originated each year were backed by the FHA.

After the financial crisis of 2008, when mortgage standards tightened, more borrowers and lenders turned to these easier-to-get loans. About 40 percent of purchase loans being originated by the end of 2009 were backed by the FHA, according to the U.S. Department of Housing and Urban Development's latest annual report to Congress. It dropped to about 26 percent at the end of last fiscal year.

As demand for FHA loans grew, HUD tried to shore up the FHA's insurance fund through a series of hikes in mortgage insurance premiums. The latest increase was in April.

The cost of getting an FHA loan

FHA borrowers are charged an annual mortgage insurance premium of up to 1.35 percent of the average outstanding balances of their loans. The fee is added to the borrower's monthly mortgage payment. The FHA also charges a 1.75 percent upfront fee when the borrower gets the loan.

A borrower getting a $200,000 loan, after making a 3.5 percent down payment, pays $225 per month in FHA mortgage insurance, plus an upfront fee of $3,500. Say you keep that mortgage for 10 years before you sell or refinance -- that adds up to about $30,000 in mortgage insurance fees.

That's substantially more than what a borrower would pay for private mortgage insurance on a conventional loan, which doesn't have an upfront fee. The mortgage insurance premium on a conventional mortgage can be less than half of FHA's insurance, depending on the borrower's credit, according to estimates from mortgage insurance company United Guaranty.

"A conventional loan generally is less expensive for borrowers in almost all cases," says Brian Gould, chief operating officer for United Guaranty, a mortgage insurer.

Why would anyone want an FHA loan?

Homebuyers normally opt for FHA loans because they don't have enough money saved for the 5 percent minimum down payment that most conventional loans require. But even those homeowners should explore their opportunities, including down payment assistance programs, says Rob Chrane, president of Down Payment Resource.

Chrane says there are various programs offered by states' housing finance agencies and city or county agencies that buyers often overlook. They tend to think they make too much money to qualify, when in reality, many of these programs are available to moderate-income families as well, Chrane says.

"I can't say everyone would qualify, but by the same token, the income limits for these programs are not just strictly to low-income households," he says. "They can range anywhere from 80 percent of area median income up to 120 percent of median income."

And if you find a lender willing to offer conventional loans with less than 5 percent down, mortgage insurance won't be an issue as some mortgage insurance companies are willing to insure loans with as little as 3 percent down.

Borrowers with high DTI need FHA loans

Although there are alternative solutions for borrowers with low down payments, some borrowers are stuck with an FHA loan for a different reason, one that can't be easily fixed. Their debt-to-income ratio, or their monthly debt obligations compared with their income, is too high for a conventional mortgage. In lender lingo, the debt-to-income ratio is known as DTI.

"I'd worry less about the down payment and more about the DTI," Schang says. "That seems to be the deciding factor on half of our deals."

Conventional mortgages generally require borrowers to have debt-to-income of 45 percent or less, while the FHA allows borrowers to spend up to 56 or 57 percent of their income on their monthly obligations, such as credit card payments, student loans and car loans, he says.

"There's a huge difference there," he says. "Somebody who has less money to spend at the end of the month is going to get stuck with FHA because that's their only option."

This piece originally appeared at Bankrate.com

Morris Hagerman Properties Index

Morris Hagerman Real Estate One Website

Back to Work program forgives borrowers with bad credit history

A bankruptcy, foreclosure, or short sale should keep you from getting a mortgage any time soon, right?

Wrong.

The Federal Housing Administration (FHA) is releasing a program called Back to Work Program.  It will help people that have had trouble in the past with bankruptcy, foreclosures and short sales that now are back to work and recovering.  

Who qualifies for Back to Work lending?

The FHA program is for people that have had an economic event that was beyond their control.  The administration asks that future borrowers prove the event was due to a loss of at least 20% of their income for at least six months.

Here are some of the events that would qualify a borrower:

• Pre-foreclosure sale
• Short sale
• Deed-in-lieu
• Foreclosure
• Chapter 7 bankruptcy
• Chapter 13 bankruptcy
• Loan modification
• Forbearance agreement

The FHA will forgive the borrower’s history after the drop in income is documented and a one hour counseling session is completed.

Borrowers have the same benefits of other FHA back loans.  There is the 3.5% down payment and the interest rates are no different than any other FHA product.

For more information contact your lender or contact me.

It's worth noting that the loans are otherwise written with the same standards as any other FHA loan. Borrowers can buy a home with as little as 3.5% down, and interest rates are no different than any other FHA product. The general idea is that borrowers shouldn't be penalized for an event outside their control.

A link to: What is an FHA mortgage
A link to: Back to work mortgage

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.

What is an FHA mortgage?

There actually aren't any “FHA mortgages.”  The Federal Housing Administration (FHA) doesn't write mortgages. What the FHA does is guarantee a mortgage for a lender.  The mortgage should be called an FHA-insured mortgage.

The FHA is the largest insurer of home loans in the world.  The agency was formed in 1934 by then president Franklin Roosevelt.  It was created to promote home ownership and to aid in the formation of stable communities.  In 1965, the FHA was rolled into the Department of Housing and Urban Development.  It has insured more that 34 million homes and properties since its formation.  Currently there is more than $1 trillion in home loans.

Here are some reasons FHA insured mortgages are so popular:

• An FHA insured mortgage will allow a 3.5% down payment.
• The interest rate for an FHA insured mortgage is sometimes a half point lower interest rate than other insured loans.
• The FHA does not assess risk based pricing for condominiums, 2 unit homes, or for credit scores below 740.
• An FHA loan can be easier to qualify for.

Is there a downside?  Well, maybe.  An FHA mortgage comes with strict guidelines for the condition of the property.  The administration requires that each home meet more stringent safety and habitability requirements then most lenders would require. This makes it more difficult to get a home approved for a mortgage, but means, the homeowner gets a better home.  

For information on an FHA loan contact your mortgage lender or call me for more information.

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page. 

August construction spending is up 7.1 percent over last year

For Release at 10:00 A.M. EDT, Tuesday, October 22, 2013

Joseph Huesman, Linnet Holland, or Trent Langley (301) 763-1605

AUGUST 2013 CONSTRUCTION AT $915.1 BILLION ANNUAL RATE

The U.S. Census Bureau of the Department of Commerce announced today (October 22, 2013) that construction spending during August 2013 was estimated at a seasonally adjusted annual rate of $915.1 billion, 0.6 percent (±2.1%) above the revised July estimate of $909.4 billion. The August figure is 7.1 percent (±2.3%) above the August 2012 estimate of $854.0 billion.
During the first 8 months of this year, construction spending amounted to $581.9 billion, 5.9 percent (±1.5%) above the $549.4 billion for the same period in 2012.

PRIVATE CONSTRUCTION Spending on private construction was at a seasonally adjusted annual rate of $640.5 billion, 0.7 percent (±1.2%) above the revised July estimate of $636.1 billion. Residential construction was at a seasonally adjusted annual rate of $340.2 billion in August, 1.2 percent (±1.3%) above the revised July estimate of $336.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $300.3 billion in August, 0.1 percent (±1.2%) above the revised July estimate of $299.9 billion.

PUBLIC CONSTRUCTION In August, the estimated seasonally adjusted annual rate of public construction spending was $274.5 billion, 0.4 percent (±3.3%) above the revised July estimate of $273.4 billion. Educational construction was at a seasonally adjusted annual rate of $63.8 billion, 1.3 percent (±5.9%) below the revised July estimate of $64.6 billion. Highway construction was at a seasonally adjusted annual rate of $80.6 billion, 0.1 percent (±7.4%) above the revised July estimate of $80.5 billion.

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.

What to do to apply for a mortgage

You don’t have to be a first time home buyer to wonder what needs to be done to apply for a mortgage.  If you haven’t owned a mortgage before, the application process may seem like a mystery.  If you have, some of the rules have changed.  They are going to change again after the first of the year.

Particular lenders may not need everything mentioned here, but it would be safe to assume that they will.  So build a file to collect all the documents and information.  

1. Credit self check:  They say knowledge is king and it is no less true here.  About three months before you apply for a mortgage, find your credit score and detailed history online with one of the many online services.  Check for erroneous information on the report, or items that are more than seven years old (10 with bankruptcy).  This will give you time to challenge the report and get the corrections made before you apply for a mortgage.  Keep all the paperwork in case the lender asks about it.  

2. Income: Roundup three years of income tax returns and W2s as well as pay stubs for the last three or four months. Most lenders will only require two years of tax returns.  With three years, if the loan officer wants more information, you are ready.  It is also the same with pay stubs, have three or four months worth instead of just two.  A year to date profit and loss statement might be required if you are self-employed.  

Keep the file up to date.  As the weeks progress, add the new documents, even after approval.  When you finally settle on a home and return to the bank, the lender will want to see an update on all documents.

3. Debts: Make sure all of your debts are listed and documented.  When the lender pulls your credit report, they will most likely find all of them.  It is up to you to provide account names and numbers, the amount owed and the what the monthly payment is on each account.  Remember to include not just credit cards, but car loans, student loans and other mortgages.  Have at least three months statements for each and, again, keep the file up to date.

4. Assets: Lenders love to see assets.  In this case, the more the merrier.  Pull together the last three statements for such things as retirement accounts, stock brokerage accounts, mutual funds, savings, checking, etc.  Don’t forget other property, business holdings and rental properties that you may own.

5. Gifts:  Many people receive money from family and friends to help them pay for a new home.  Lenders have less problems with that if it is a gift and not a loan.  Any money that shows up in your assets 60 - 90 days before appling, such as savings and checking accounts, document.  A letter from the provider that it is a gift and not a loan is the first step in documentation.

6. VA Loans: A Certificate of Eligibility (Form DD 214) is need if you are applying for a VA loan and not currently in the military.  For those that are still active, a letter from your commanding officer is needed.  

7. Divorce: Child support and alimony should be reported as income for the recipient and a debt for the provider.  Qualifying documents need to be provided on both sides.

8. Bankruptcy: Sometimes you can get a mortgage two years after bankruptcy if it is caused by a hardship such as a job loss or medical emergency.  That is, if you have establish good credit since.  Lenders require that all the documents for the bankruptcy be fully disclosed.  

9. Foreclosure: After a foreclosure you will need to wait at least two years and maybe as many as five before a lender will approve a mortgage.  Longer if you “walked-away” from a home loan.  As with other issues, lenders will want full documentation.

11.  Approval:  When you are approved, the lender should do two things.  First, they should issue a letter or memo stating that you are approved for a loan with the maximum amount indicated.  (When making an offer, have another stating that you are approved for only the amount of the offer.  But, that is for another blog post.)  Second, they should provide a good faith estimate of the cost of the loan and the worst case estimate on the closing cost.  This part is important.  Not only do you need to come up with whatever the down payment is at closing, you also need to come with cash for the closing cost.

11. Finally: Once you are approved, and have the letter from the bank, don't make any changes in your financial situation until you close on your home.  Don't purchase a car, take out another charge card or run up a balance on another.  Of course, unless an emergency comes up, then document it.  Any changes might just mean that you will fall out of formula and need to start over, or worse, get denied.

This is not a complete explanation of the application process.  There will be many things that come up that are specific to your individual situation.  But, the outline provides you with a great start to a both nervous and exciting time.

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.